NEW DELHI: India Ratings and Research has maintained its negative outlook for FY17 for the Indian steel sector due to weak product pricing capability and cheap imports that have hit capacity utilisation in the sector.

Expecting a minor pick up in the demand, the rating agency has said that government’s focus on initiatives like Housing for All, 100 smart cities and launch of the National Infrastructure Investment Fund is expected to reignite demand in the construction sector.

“The demand of steel is expected to grow to 6.3%-6.5% in FY17 on the back of traction in key end-user industries such as construction, capital goods and consumer durables,” the agency in its report.

FY15 saw a fall in domestic capacity utilisation to around 80% in FY15 from 88% in FY2010. This plummet was mainly due to the surge in imports. The upward trend seen in the imports has hit the domestic production by .7% and “despite steel consumption demand improving 5.3% yoy over April-November 2015, the sector is witnessing a fall in capacity utilization,” the report said.

“Any improvement in the capacity utilisation rate will only be possible post a recovery in key steel consuming sectors like construction and a lid over imports,” the observed.

To restrict imports and help domestic steel makers, the government in 2015 hiked the import duty twice, however, negligible impact was felt. The government later imposed a fairly steep 20% safeguard duty on certain steel products in its bid to correct trade distortions.

The imports into India increased 71% yoy in FY15, with China accounting for close to 36% of the total imports. Despite many policy actions taken by the government to restrict imports, the imports still increased 34% yoy during April-November 2015.

Finished steel consumption increased by 3.1% yoy in FY15, exports fell by 8.1%. Finished steel production during the same period increased by 3.3%.

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